It’s no secret that growth investment maestro Cathie Wood expects big things from it Bitcoin (CRYPTO: BTC). The Ark Invest fund manager started talking about crypto before she was a household name, and recently doubled down on her bullish projections again.
In a Bloomberg TV interview last Thursday, Wood reiterated a Bitcoin price target of $1.0 to $1.5 million by the year 2030. But that’s not the whole story. The nice thing about Cathie Wood’s Bitcoin coverage is that she continues to explain her investment thesis in increasing detail over time.
Last week’s interview was no exception. So let’s take a look at Cathie Wood’s latest insights into Bitcoin-friendly economic theory.
First, Wood noted that the odds of reaching her existing Bitcoin price targets by 2024 have increased. Institutional investors are finally taking digital assets seriously, aided by new instruments like the spot Bitcoin exchange-traded funds (ETFs) that launched in January. Their Bitcoin investments should make a big difference to the asset’s price and stability in the coming years.
“[Large investors] should consider an allocation these days because there is a hard limit on Bitcoin production in the long term.
94.3% of all Bitcoin that will ever exist has already been produced and is sitting in crypto wallets around the world. You can’t grab a big slice of the total Bitcoin pie by creating or finding more of it, as you would with physical assets like gold or oil. The iron law of supply and demand should inevitably drive the price of this limited asset up, so financial institutions should start building their Bitcoin portfolios before it becomes expensive.
In this context, $100,000 per coin does not qualify as “expensive.” Remember that the long-term target price is measured in millions of dollars. Cathie Wood is playing the long game here.
Wood also explained that Bitcoin is more than a speculative asset. Rather than the next value-free “tulip bulb craze,” Bitcoin serves an important purpose for people who don’t just expect it to gain value over time.
“It is a global monetary system that is rules-based,” she said. “It’s private, it’s digital, it’s decentralized and it’s backed by the biggest [computer system] in the world. It is the most secure network in the world.”
Bitcoin is similar to a global and highly detailed accounting system that keeps track of all the gold in the world, assigns an owner to each piece of gold nugget and protects the data with several layers of cryptography. You cannot cancel or change any transactions or ownership data without essentially breaking Bitcoin’s transaction recording platform. The item being tracked in this case is not a physical piece of precious metal, but the computer work required to generate a unique digital token.
There is an unknown but very real limit to the amount of physical gold in the world until entrepreneurs find additional sources on asteroids or other planets. At the same time, there will simply never be more than 21 million Bitcoin tokens, and 19.6 of them are already in circulation. In the long run, this system is virtually inflation-free – assuming its security holds up against new attack ideas such as quantum computing algorithms.
Cathie Wood also highlighted how this inflation-proof approach differs from gold.
“When the price of gold goes up, production goes up – the rate at which supply increases,” she said. “That can’t happen with Bitcoin. It is mathematically measured to increase by 0.9% per year over the next four years, and then supply growth will be halved again.”
Physical gold mining is more common when the price of the metal is high. Miners want to take advantage of this valuable asset when it makes the most economic sense. The equation is different for Bitcoin miners, who will produce smaller and smaller portions of the digital asset over time. The cost of minting new Bitcoins will therefore increase, while the number of new coins introduced to the market decreases.
So it is smarter to deliver maximum production effort as quickly as possible, because the return on your mining machines and electricity investments will only shrink over the years. The same logic suggests that buying Bitcoin early will be more profitable in the long run. Waiting for a lower buy-in price or an easier Bitcoin mining environment almost never makes sense.
So Cathie Wood underlined her five-year Bitcoin target of at least $1 million per coin, and provided more details about her underlying investment thesis.
Other Bitcoin investors may be working with different assumptions that result in different target prices, but the overall market tenor is fairly consistent. Bitcoin seems poised to rise after the recent $100,000 price milestone. From big banks to regular nest egg builders, most investors should pay serious attention to these newfangled cryptographic tokens.
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Anders Bylund has positions in Bitcoin. The Motley Fool holds and recommends positions in Bitcoin. The Motley Fool has a disclosure policy.
1 Top Cryptocurrency to Buy Before It Surges 1,500%, According to Cathie Wood Originally Published by The Motley Fool
